Wednesday, April 3, 2013

Economics in One Lesson by Henry Hazlitt

The title of this book is a bit of a misnomer, as there is far more than one lesson to be learned here; perhaps "in one volume" is a better term. Still as Hazlitt says, "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consist in tracing the consequences of that policy not merely for one group but for all groups." Each of the policies he examines in the book are dissected with those principles in mind.

According to Hazlitt, bad economists are "presenting half-truths. They are speaking only of the immediate effect of a proposed policy or its effect upon a single group." Discovering all of the effects of a particular policy, however, takes a long time, and is often found boring - just doesn't make a good sound byte for politicians. Remember Ross Perot?

The book was first published in 1946, with this edition updated slightly for 1979. It's interesting to note that the same proposed solutions which did not work before are still being touted by modern experts today as the cure-all for our economic ills. Hazlett makes so many good points here, I had post-Its scattered all through the pages. This is the kind of economics text that ought to be required reading in high school for all U.S. students, before they are given the franchise, in my opinion, so that they can recognize the scams being recycled by our current crop of "leaders", across party lines. True increases in the size of the economic "pie" available to all come only through increased productivity, being more creative and efficient with our time and labor.

I've heard this one before, haven't you?

"The more sophisticated advocates of of paper if it were itself a form of wealth that could be created at will on the printing press. They even solemnly discuss a 'multiplier,' by which every dollar printed and spent by the government becomes magically the equivalent of several dollars added to the wealth of the country."

Does this sound familiar?

"They tell us that the government can spend and spend without taxing at all; that it can continue to pile up debt without ever paying it off, because 'we owe it to ourselves.' ... Here I am afraid that we shall have to be dogmatic, and point out that such pleasant dreams in the past have always been shattered by national insolvency or a runaway inflation."

And this is very nearly prophetic, being written prior to Fannie and Freddie guaranteeing nonstandard, improperly documented loans, putting us all on the hook for billions in losses.

"When people risk their own funds they are usually careful in their investigations to determine the adequacy of the assets pledged and the business acumen and honesty of the borrower...But the government almost invariably operates by different standards. The whole argument for its entering the lending business, in fact, is that it will make loans to people who could not get them from private lenders. This is only another way of saying that the government lenders will take risks with other people's money (the taxpayers) that private lenders will not take with their own money."

Could this have any relevance to the Cyprus debacle?

"On the one side are savers automatically, pointlessly, stupidly continuing to save; on the other side are limited 'investment opportunities' that cannot absorb this saving. The result, alas, is stagnation. The only solution, they (the inflationary economists) declare, is for the government to expropriate these stupid and harmful savings and invent its own projects, even if these are only useless ditches or pyramids (or solar power companies?), to use up the money and provide employment."

Hazlett takes on trade protectionism via tariffs, minimum wage laws, subsidies for particular industries, the inflationary tactics of increasing the money supply, government price-fixing, and many more ploys that our government tries to convince us will benefit us all, rather than the constituency of lobbyists pushing for them. There's really nothing new under the sun, folks, they've been selling this cartload of horse manure for a century or two, and none of it works the way they say it will.

"...government policy should be directed, not to imposing more burdensome requirements on employers, but to following policies that encourage profits, that encourage employers to expand, to invest in newer and better machines to increase the productivity of workers..."

Roughly a quarter century ago, at the time this book was last updated, Hazlitt writes the following about the Social Security pyramid scheme:

"No one can say today whether Social Security is really an insurance program or just a complicated and lopsided relief system. The bulk of the present benefit recipients are being assured that they 'earned' and 'paid for' their benefits. Yet no private insurance company could have afforded to pay existing benefit scales out of the 'premiums' actually received...If Social Security is thought of as a relief system, however, it is a very strange one, for those who have already been getting the highest salaries receive the highest dollar benefits...The American Social Security System must stand today as a frightening symbol of the almost inevitable tendency of any national relief, redistribution, or 'insurance' scheme, once established, to run completely out of control."

It's all based on the idea that you can get something for nothing, that there is such a thing as a free lunch, and that Peter isn't hurt when you rob him to pay Paul. But if you look at the long term, wider effects of most government interventions in the economy, rather than merely the immediate payout for a select group (whoever bought that congresscritter), the situation is nearly always worse than if nothing had been done at all.

Read this one and weep - for our future, if we don't learn the lessons of the past.

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